Just jumpped into the trading world

Airline executives have little more to go on than a feeling, but based on very preliminary numbers, they’re expecting ticket sales to climb as the summer travel season approaches. That could mean that after several months of fare declines, prices will reverse and begin rising for the summer months as newly confident consumers book summer trips.

From mid-February on, bookings have improved, said Scott Kirby, president of US Airways Group Inc. Sales are still worse than a year ago, “but things seemed to bottom in February, at least in the near term,” Mr. Kirby said. “Hopefully we’ve seen the worst of it.”

Bookings had dried up dramatically in January, prompting carriers to launch massive fare sales, some offering fares as low as $99 to fly across the country with little advance purchase. Last month, average domestic fares were about 8.7% lower than a year earlier, and fares to Europe fell by more than 10%, according to the Air Transport Association.

Airlines also blitzed travelers with special deals on top of low fares, from double and even triple elite-qualifying miles for frequent fliers, to JetBlue’s promise — similar to those made by some car companies — of a full refund if a customer is laid off before a trip.

Those deals appear to have worked, at least somewhat, as carriers report an uptick in domestic bookings for April. While spring break travel was weak, some consumers seem willing to plan trips to see family and friends over the Easter and Passover holidays in April, seeing those travels as more of a necessity than an optional vacation.

“As we get into the holiday periods we are starting to see some traction,” said David Barger, chairman and chief executive of JetBlue Airways Group Inc.

Mr. Barger, like other airline executives, expects full planes this summer. But carriers don’t yet know what kind of pricing power they’ll have in the coming months. It may be planes can only be filled at bargain-basement prices. Or rebounding demand could make seats more precious.

“I think we’re going to see our traditional strong summer traffic,” he says. “The question is going to be, at what price?”

Thousands of passengers pass through the United Airlines hub at Chicago’s O’Hare airport during the busy summer travel season.

Of course, calling a bottom to the recession is risky business at this point. Another unexpected blow or two to consumer confidence, and the downward slide in air travel could resume. If it does, airlines are strangely well-positioned to continue offering lower fares and even eke out small profits this year.

Last summer’s oil-price shock forced airlines to ground so many planes that when demand plunged from business and leisure travelers, airlines had already significantly reduced capacity.

“The fact that many carriers are projecting even the prospect of profits this year says a ton about the extent of the capacity cuts they’ve made and the success of steps they’ve taken in the last 12 months,” said John Heimlich, chief economist for the Air Transport Association.

Just consider baggage fees, which alone may swing some airlines to profitability this year.

At US Airways, baggage fees and other “ancillary revenue” initiatives are expected to amount to an added $400 million to $500 million in extra revenue in 2009 — as much as the company has ever earned in its best year. At UAL Corp.’s United Airlines, total ancillary revenue, mostly “Economy Plus” coach seating and baggage fees, will be $1.2 billion this year. That’s more than United’s cargo division will bring in, and enough to pay more than one-quarter of the company’s payroll.

For many airlines, an uptick in consumer demand is only part of the economic story. Business travel has dropped off sharply, as many corporations restrict travel and reduce business activity — fewer deals to close or projects to launch. In addition, many who are still traveling have traded down, refusing to buy high-dollar first-class or business-class tickets and riding in coach instead.

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International carriers that rely heavily on high-dollar corporate customers are suffering more heavily now than airlines that focus more on domestic travel and low-fare passengers.

“We’ve seen businesses once again, especially big businesses, focus on the travel budget as one of the most visible items in the budget,” said Glenn Tilton, chairman and CEO of UAL and United. “So our big corporate clients are clearly reducing their travel.”

If demand does pick up as some executives are predicting, airlines will enjoy renewed pricing power because of their capacity reductions.

Airline executives note that they do not yet have a good read on summer traffic. Few tickets have been sold for the busiest travel season of the year, airlines say. US Airways says only 20% of its seats have been sold for May, giving the airline only sparse data on what to expect this summer.

But even at the biggest U.S. airlines, there are signs of improving domestic demand, at least in spring.

While economic conditions vary market-to-market, “domestic markets are showing more signs of some sense of economic optimism than foreign markets are,” said Mr. Tilton.

Still, business travelers are not likely to return until the broader economy gains steam, meaning continued pain for many airlines — but cheap tickets for many consumers.

March 30 (Bloomberg) — The cost of protecting corporate bonds from default rose as concern grew that Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets may not be enough to save some from collapse.

Credit-default swaps on Citigroup Inc. approached a record reached earlier this month, and contracts on Bank of America Corp. reached new highs. Geithner yesterday said some banks will need substantial government aid, in addition to the toxic-asset program. Contracts on General Motors Corp. priced in a greater chance of default by the automaker as the Obama administration said bankruptcy may be the best option for GM and Chrysler LLC.

The growing potential for a bankruptcy by GM and Chrysler and concerns that banks will need greater government intervention are increasing fears that debt holders won’t be spared losses amid government efforts to stabilize the industries.

“There is a risk that the U.S. banking system and many others are insolvent,” said Philip Gisdakis, a Munich-based credit strategist at UniCredit SpA. “This plan does not necessarily help to avoid nationalizations.”

Some banks will need substantial government aid in addition to the federal program that will buy as much as $500 billion of illiquid assets, Geithner said yesterday on the ABC News program, “This Week.”

Analysts at Credit Suisse Group AG in New York are more confident that Geithner’s plan will prove to be sufficient. It “puts us in the ninth inning of the financial crisis,” interest-rate strategists Dominic Konstam and Carl Lantz wrote in a note to investors.

Credit-default swaps, which are used to hedge against losses or to speculate on a company’s ability to repay its debt, pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Contracts on the Markit CDX North America Investment-Grade Index Series 12, linked to 125 companies in the U.S. and Canada, climbed 5.5 basis points to 188.5 basis points as of 8:45 a.m. in New York, according to Barclays Capital. An increase typically signals a decline in investor confidence.

Wagoner Ousted

Swaps protecting against a default by Detroit-based GM rose 2.5 percentage points to 79.5 percent upfront, according to broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $7.95 million initially and $500,000 annually to protect $10 million of debt for five years.

Contracts on GMAC LLC, the auto and home lender that received a $6 billion government bailout after the housing crisis and plunging auto sales left it on the brink of bankruptcy, climbed 3.5 percentage points to 31 percent upfront, Phoenix prices show.

GM Chief Executive Officer Rick Wagoner was forced out after the Obama administration decided he was unable to craft a plan to save the automaker. Bankruptcy may ultimately be the company’s best chance, according to an Obama administration official who spoke with reporters and declined to be identified.

In London, the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings increased 20 basis points to 930, the highest in more than a week, according to JPMorgan Chase & Co.

March 30 (Bloomberg) — Four days after U.S. lawmakers berated Financial Accounting Standards Board ChairmanRobert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging fromBank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.

Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” saidRobert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”

Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses.

‘Outrageous Threats’

“What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.

FASB spokesman Neal McGarity said the proposal allowing significant judgment was “in the works prior to the Washington hearing and was merely accelerated for the first quarter, instead of the second quarter.” The plan on impaired investments “was an attempt to address an important financial reporting issue that has emerged from the financial crisis,” he said.

Mary Schapiro, sworn in as SEC chairman in January, testified to Congress on March 11 that the agency recommends “more judgment in the application, so that assets are not being written down to fire-sale prices.”

Unrealized Losses

Goldman Sachs Group Inc. investment strategist Abby Joseph Cohen andNouriel Roubini, the New York University professor who predicted last year’s economic crisis, made bearish forecasts last week about the outlook for the banking industry. Cohen says banks aren’t yet “in the clear,” and Roubini expects the government to nationalize more lenders as the economy contracts. The 24-member KBW Bank Index rose 21 percent in March, after slumping 75 percent during the prior 12 months.

By letting banks use internal models instead of market prices and allowing them to take into account the cash flow of securities, FASB’s change could boost bank industry earnings by 20 percent, Willens said. Companies weighed down by mortgage- backed securities, such as New York-based Citigroup, could cut their losses by 50 percent to 70 percent, said Richard Dietrich, an accounting professor at Ohio State University in Columbus.

“This could turn net losses into significant net gains,” Dietrich said. “It may well swing the difference as to whether bank earnings are strong this quarter, or flat to negative.”

‘Unintended Consequences’

Citigroup had $1.6 billion of losses last year for so- called Alt-A mortgages, according to the company’s annual report. That loss would be erased with the new FASB rules, Dietrich said.

Bank of America Corp. in Charlotte, North Carolina, reported “income before income taxes” last year of $4.4 billion. The FASB proposal on impaired securities would increase that figure by about $3.5 billion, or the amount of “other- than-temporary” losses that the company recognized, Dietrich said. The new rule would mean the loss would be stripped out of net income, boosting earnings, though it would still be reported in financial statements.

While helping lenders report higher earnings, FASB’s changes may hurt Treasury Secretary Timothy Geithner’s plan to remove distressed assets from bank balance sheets, Dietrich said. Allowing companies to hold on to assets without writing them down could discourage them from selling the securities, which would work against Treasury’s objective to resuscitate markets, he said.

“It’s one of the unintended consequences of having the FASB bow to political pressure,” Dietrich said.

Bank Lobbying

Fair-value requires companies to set values on most securities each quarter based on market prices. Banks argue that the rule doesn’t make sense when trading has dried up because it forces them to write down assets to less than they’re worth.

Conrad Hewitt, a former chief accountant at the SEC who stepped down in January, said representatives from the ABA, American International Group Inc., Fannie Mae and Freddie Mac all lobbied him over the past two years to suspend the fair- value rule.

Executives “would come to me in the afternoon with the argument, ‘You’ve got to suspend it,’” Hewitt said in a March 25 interview. The SEC, which oversees FASB, would reject their demands, and “the next morning their lobbyists would go to Congress,” he said.

‘Is That Fair?’

AIG’s near-collapse in September prompted a $182.5 billion government rescue of what was once the world’s largest insurer. Earlier that month, the Federal Housing Finance Agency put Fannie Mae and Freddie Mac under its control after the worst housing slump since the Great Depression threatened the survival of the mortgage-finance companies.

Banks and insurers wanted to value securities at prices they bought them for, Hewitt said. His response: “If you carry them at 100 percent of what your purchase price was and they are worth 50 percent, is that fair to the investor?”

Hewitt said nothing the SEC and FASB did curtailed the lobbying by financial companies, including issuing guidelines on how to price assets when no market exists and conducting a congressionally mandated study of fair-value accounting.

“I don’t think there was anything that would have pacified them,” short of a suspension, he said.

Bank of New York

Efforts to change accounting rules continued after the election of PresidentBarack Obama. Bank of New York Chief Executive Officer Robert Kelly spoke with Gary Gensler, a Treasury official during the Clinton administration who was asked by the transition team to evaluate the SEC. Kelly said in an interview that while he opposes suspending mark-to-market accounting, he discussed with Gensler ways to lessen its impact. Gensler, who has since been nominated to chair the Commodity Futures Trading Commission, declined to comment.

Bank of New York would be one of the biggest beneficiaries of FASB’s proposed changes, said Jeff Davis, director of research at Chicago-based brokerage Howe Barnes Hoefer & Arnett. The company’s earnings were reduced by $1.6 billion last year from writedowns for mortgage-backed securities, according to its annual report. The bank, which said it expects to ultimately lose about $535 million on the assets, blamed the disparity on “market illiquidity.”

House Hearing

At a March 12 hearing of a House Financial Services subcommittee, lawmakers showed impatience with FASB.

After hesitating, Herz said he would try to get a new fair- value rule finished within three weeks.

“The financial institutions and their trade groups have been lobbying heavily,” Herz said in an interview after the hearing. “Investors don’t lobby heavily.”

The political action committees of banks including Citigroup, Bank of America, Bank of New York Mellon, Wells Fargo and banking trade groups contributed money to Kanjorski’s re- election campaign last year, according to the Federal Election Commission. Citigroup gave $6,500, Bank of America $7,000, Bank of New York $8,000 and Wells Fargo $13,000.

Three days before the hearing, 31 financial-industry groups sent a letter to committee chairman Barney Frank and Alabama Representative Spencer Bachus, the panel’s ranking Republican, emphasizing “the need to correct the unintended consequences of mark-to-market accounting.” The organizations included the ABA, the National Association of Realtors and the 12 Federal Home Loan banks, the government-chartered cooperatives owned by U.S. financial companies.

The Federal Home Loan Bank of Atlanta, which Kanjorski cited at his hearing as an institution hurt by fair-value accounting, would also stand to gain from FASB’s proposals.

The company, one of 12 regional institutions that provide low-cost financing to 8,000 member banks, absorbed an $87.3 million writedown on three mortgage-backed securities after determining it would not collect all the cash the assets were supposed to generate, according to a November SEC filing.

Under the FASB proposal, the reduction in the bank’s earnings would be much closer to the $44,000 that the company expects to lose, according to Brian Harris, a senior vice president at Moody’s Investors Service in New York.

‘Raging Inferno’

“It potentially moves the accounting closer to where we saw the economics of these transactions,” Harris said in a March 24 interview. “We don’t see a risk to their debt securities.”

Also endorsing the letter was the Pennsylvania Association of Community Bankers. Thomas Bailey, the group’s chairman and CEO of Brentwood Bank in Bethel Park, Pennsylvania, told the subcommittee that using fair-value accounting “in these times, is much like throwing gasoline on a raging inferno.”

March 30 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said some financial institutions will need substantial government aid, while warning against any attempt to tax investors who join a federal program to buy tainted assets from banks.

“Some banks are going to need some large amounts of assistance,” Geithner said yesterday on the ABC News program “This Week.” The terms of a $500 billion public-private program to aid banks “cannot change” for investors or they’ll lose confidence in the plan, he said on NBC’s “Meet the Press.”

The Obama administration is pursuing the most costly rescue of the U.S. financial system in history while facing taxpayer concerns the aid is bailing out Wall Street firms that took excessive risks. After allocating about 80 percent of $700 billion in aid approved by Congress, administration officials want to keep open the option of seeking more.

Geithner said the Treasury has about $135 billion left in a financial-stability fund while declining to say whether he will request additional money.

“If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively,” he told ABC News.

Geithner announced this month a plan shore up the nation’s banks with a public-private partnership to finance the purchase of illiquid real-estate assets. The program will ensure banks emerge from the crisis “cleaner” and “stronger,” Geithner told ABC News.

Purchasing Bad Debt

The plan is designed to purchase as much as $500 billion of bad debts and securities from banks, allowing the institutions to remove tainted assets, attract private capital and resume active lending, according to Geithner.

“The great risk is that we do too little rather than too much” to revive credit and stem what economists say may be the worst recession in seven decades, he said.

Banks need to show more willingness to take risks and restore lending to businesses in order for the U.S. economy to recover from the recession, Geithner said.

“To get out of this we need banks to take a chance on businesses, to take risks again,” he said.

Increases in housing purchases and small business lending indicate government aid is reviving markets, he said.

“Where we are acting, we are seeing progress and impact,” Geithner said on NBC yesterday.

Geithner defended the public-private partnership by saying it was better than the alternatives of requiring banks to weather the crisis with limited federal backing or having the government buy the financial institutions’ toxic assets.

Money at Risk

“The investors are taking risk, their money is at risk and at stake,” he said. Allowing investors to leverage their money with government contributions and guarantees “is a relatively conservative structure,” similar to when an individual obtains a mortgage to buy a house, he said.

Geithner’s comments are part of an effort by the Obama administration to leverage public anger over the financial crisis to win support for giving theTreasury sweeping new powers.

The public-private partnership plan has been criticized by Nobel Prize-winning economist Paul Krugman and other analysts as eliminating risk for investors.

Arizona Senator John McCain, the Republican nominee for president last year, said that while he hopes the new plan works, the Treasury’s efforts to bolster the economy have suffered from “a great deal of incoherency for a long time. It seemed like every few days there was a target du jour.”

Questionable Support

Most members of Congress probably wouldn’t support a request for new bailout funds because they aren’t clear about how the government used the $700 billion authorized in the first legislation, McCain said.

“We still don’t have the transparency and oversight,” McCain said on “Meet the Press.” He said his biggest concern is that the cost of stemming the financial crisis will worsen annual deficits projected to exceed $1 trillion for many years.

“What I am most worried about is laying the debt on future generations of Americans,” he said.

When asked on “This Week” whether Treasury had enough resources to provide a similar level of aid to struggling U.S. automakers, Geithner said the administration was “prepared as a government to help that process.”

“We want to have a strong automobile industry,” he said. “We want it to emerge from this period of challenge stronger.”

Stronger Industry

“We’re prepared as a government to help that process if we believe it’s going to provide the basis for a stronger industry in the future that’s not going to rely on government support.”

Separately, Geithner called on Latin American and Caribbean countries to help revive global growth by safeguarding free trade and stimulating their economies through “all available tools.”

The U.S. and other nations “need to affirm our commitment to maintain open policies toward international trade and investment and to avoid protectionist measures that could threaten recovery,” Geithner said yesterday at the Inter- American Development Bank meeting in Medellin, Colombia. He called on “international institutions” to quickly provide aid.

Geithner proposed last week bringing large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic risk regulator would have powers to force companies to boost their capital or curtail borrowing, and officials would get the authority to seize them if they run into trouble.

After hanging onto his job amid nearly decade of turmoil and criticism, General Motors Corp. Chief Executive Rick Wagoner is being forced to resign by a presidential administration that has been in place fewer than 90 days.

In nine years as chief executive of GM, Mr. Wagoner presided over staggering losses of money and market share — and for the last three years had faced persistent calls for his head.

But Mr. Wagoner had fended off all critics until GM squared off with President Barack Obama’s auto task force. On Friday, Mr. Wagoner met with the head of the task force, Steven Rattner, and learned the government was pushing for a change at the top of the auto maker as it considered extending it more loans, a person familiar with the matter said.

Mr. Wagoner’s decision to step down leaked out on Sunday, catching even some top executives at the company off guard.

Reached at his home Sunday, Mr. Wagoner said, “I’m sorry, but I will need to pass” on the opportunity to comment.

Mr. Wagoner said in a statement released by GM, “On Friday I was in Washington for a meeting with administration officials. In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”

Mr. Wagoner had served as GM’s CEO since 2000, and ran into serious trouble after the company stumbled to an $11 billion loss in 2005. The following year, billionaire investor Kirk Kerkorian, then holding nearly 10% of GM, forced the auto maker into merger talks with Nissan Motor Co. and Renault SA, in the hope of replacing Mr. Wagoner with Nissan/Renault’s Carlos Ghosn.

But Mr. Wagoner lined up allies, including Vice Chairman Bob Lutz and then-Chief Financial Officer Fritz Henderson, and drew up blueprints to thwart Mr. Kerkorian and Jerome York, who represented Mr. Kerkorian on GM’s board. Mr. Wagoner argued that GM had plenty of resources without adding Nissan/Renault as a partner, and claimed GM shareholders would get the short end of the bargain.

Just a few months ago, Sen. Christopher Dodd (D., Conn.) suggested Mr. Wagoner should go, saying GM needed to change the company’s direction after nearly running out of money and requiring government loans to stay afloat.

Through it all, Mr. Wagoner continued to have the confidence of GM’s board of directors, in particular the lead independent director, former Kodak CEO George Fisher.

Mr. Wagoner grew up in Richmond, Va., in an upper-middle-class home, and attended his father’s alma mater, Duke University. At 6 feet 4 inches tall, Mr. Wagoner walked on to Duke’s freshman basketball team in 1971. Ever since graduation, he had remained devoted to the school, currently serving on its board of trustees.

In 1977, Mr. Wagoner joined GM as an analyst in the company’s treasurer’s office that borders Central Park in midtown Manhattan. Mr. Wagoner spent much of his 30s in international operations, where he gained a reputation for trimming costs.

But after becoming chief executive in 2000, he consistently stopped short of dramatic action. Faced with an abundance of brands, each requiring costly marketing support, he killed one: Oldsmobile. But not until the company faced financial ruin in recent months did he take that measure two steps further, by announcing plans to close or sell off GM’s Saab, Hummer and Saturn brands.

Similarly, he never seriously attacked the costly burden of providing health care to the company’s retirees or otherwise reducing labor costs that made each GM car thousands of dollars more expensive to build than its foreign-based competitors.

Discussing labor-costs reductions in 2005, Mr. Wagoner said, “Our plans do not include anything radical like eliminating the JOBS bank,” referring to a program that provided pay to laid-off workers.

Mr. Wagoner consistently resisted any talk of bankruptcy. Instead, he constructed a set of external benchmarks for investors to monitor. The key benchmark was a commitment to cutting $9 billion in structural costs via capacity cuts, labor concessions and other measures. At the same time, he vowed to churn out better products and grow in China, Russia, Brazil and other developing economies.

Even as costs dwindled and emerging markets boomed, Mr. Wagoner could not stanch the consistent slide in U.S. market share. He also didn’t forecast a punishing rise in gasoline prices that would sap demand for GM’s core products, trucks and SUVs.

Kent Kresa, a GM director since 2003, said in an interview late last year that Mr. Wagoner and other GM executives constantly underestimated the auto maker’s troubles. Of the financial crisis that struck in recent months, destroying sales and liquidity, Mr. Kresa says, “I can honestly say no one ever projected this.”

By November, with little more than one month’s worth of cash on hand and still no commitment from Congress on a bailout loan, Mr. Wagoner addressed hundreds of employees at a town hall meeting at the company’s corporate headquarters in Detroit.

Mr. Wagoner was greeted with a standing ovation, according to people at the meeting. Employees said they were proud of Mr. Wagoner for defying calls for resignation and insisting the company would not file for bankruptcy protection. Yet at the same time, his resignation Sunday in exchange for financing needed to save the auto maker was characteristic of his devotion to the company he’d joined after graduating from Harvard Business School in 1977.

“He woke up every morning going to work with the devotion of a priest,” Peter Bible, the company’s chief accounting officer in 2006, said in an interview earlier this year.

March 30 (Bloomberg) — Investors should sell U.S. stocks following the steepest rally since the 1930s because earnings are likely to keep weakening, according to Morgan Stanley.

The Standard & Poor’s 500 Index has advanced 21 percent in the past 14 trading days, the most since 1938, according to data compiled by New York-based S&P analyst Howard Silverblatt. It closed at 815.94 last week, rebounding from the 12-year low of 676.53 reached on March 9.

“We cannot see large upside for the S&P 500 above the 825- 850 level,” Morgan Stanley strategist Jason Todd wrote in a report dated yesterday. “We see a lack of fundamental support outside the financial sector, where there is now a fast-growing belief that policy action and bank guarantees may have finally backstopped the downside.”

U.S. companies will start reporting results for the first quarter in the next two weeks. Analysts, who have overestimated profits for every period since the third quarter of 2007, expect S&P 500 earnings to drop 36 percent on average, paced by retailers, automakers and semiconductor suppliers, according to data compiled by Bloomberg. They’re forecasting S&P 500 companies won’t halt the longest streak of declining earnings since at least 1947 until the fourth quarter.

“In the rush to buy a cyclical recovery, it seems earnings or valuation no longer matters,” Todd said. “We would be comfortable with this view if the earnings trough was closer, but it is not, and we think this does matter.”

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.

“[Today’s opening] is a little pull-back,” said Spiropoulous. “We’ve got to give the bear some hope that they’re not going to get totally crushed—but that’s coming. Be patient.”

He said this is a good opportunity for investors to start putting their cash to work.

“I think there are tremendous opportunities out there. To be 100 percent cash and hiding on the sidelines sucking your thumb is not a valid strategy,” said Spiropoulous.

Heider disagreed: “To be very honest, we freely admit that we can’t call the bottom,” said Heider. “And if anything, the last 15 months has told us we have no credible pundit that called bottoms and suggested when it was time to get out and when to get back in.”

Spiropoulous Recommends:

Johnson & Johnson [JNJ 52.83 -0.07 (-0.13%) ]

Heider Recommends:

Managed Futures

High-Grade Municipal Bonds

Distressed Mortgage Funds—for those with “a larger risk appetite.”

Disclosure:

Disclosure information for Bill Spiropoulous and Joe Heider was not immediately available.